Adobe is a household name on Madison Avenue. Adobe-related products proliferate throughout creative and media, using everything from Adobe Illustrator, Photoshop, InDesign, Acrobat and EchoSign as we go about our daily business. Adobe has built close to a $14 bn business on the strength of Madison Avenue. Not too shabby.
At what point does Madison Avenue get concerned about Adobe? Personally and professionally, I like to ask myself these questions every now and again.
Recently, I was reading thru their November 2011 investor presentation (I'm a shareholder) and I believe that their strategy will put them as one of the top players in the digital marketing ecosystem, creating a future storm for Madison Avenue, or more accurately a storm cell as two "clouds" collide.
The first cloud is what Adobe calls the Creative Cloud, which is a combination of creative services, apps, and community focused for the creative world, including applications like Photoshop, Illustrator, and others, online creative storage, and online training and premium support. Adobe has long sold software to the creative community but is now shifting to a subscription model for its Creative Cloud, which is winning new clients.
By going from the old model of sell once and forget, to the new one of selling software subscriptions, storage and community, Adobe predicts an incremental $10/mo per user ($30->$40). That incremental revenue is material. By FY2015, Adobe is expecting 800,000 new users paying $49-69 per month. This math comes from their investor presentation, so we'll take their word for it.
The second cloud forming is the Digital Marketing Cloud, based on the shift of marketing spend to digital. In 2009 Adobe acquired Omniture, a pivotal $1.8 billion acquisition that enables Adobe to expand beyond the creative phase of development into data and analytics. Recent acquisitions such as Auditude, Demdex and Efficient Frontier have validated the Digital Marketing Cloud by extending Adobe into video ad placement, data warehousing and segmentation along with media optimization and purchasing.
Adobe's Digital Marketing Cloud focuses on three core areas: optimization, content and data. They (and I as well, frankly) believe in a personalized, measurable experience across any device. In their investor presentation, they specifically call out site-side, Facebook, CRM, and 3rd party data as areas they want to focus, which make a lot of sense by the recent acquisitions.
So, who will buy Adobe's Digital Marketing Cloud? They're focusing on chief revenue officers, marketers, and analytics professionals: not advertising agencies. They are going direct as the total addressable market for the Digital Marketing Cloud is $6 billion dollars in 2012 and they will stomp on almost every company in the now infamous Lumascape who gets in their way.
Does Adobe's plans for 2012 scare you? Does it inspire you?
These are my 5 key takeaways:
- Adobe is moving to a subscription model. This allows Adobe to diversify revenue risk and become a much more stable company as they are not reliant on any one or small group of customers.
- Adobe is the only company at scale who offers a product through the entire value chain from the initial creative concepting to post-launch and optimization.
- Adobe does not see Madison Avenue as a key market. I may be over-reacting here but I believe this is very telling of their future.
- I'm guessing Adobe will be acquired in the next 24-36 months by a forward-looking services organization who wants to participate in the marketing business or by a giant tech company who wants to add their customers and kill competition. Adobe has close to a $14bln market cap: at a 33% premium, Adobe would sell for $18.6bln. I believe the potential acquirers here are IBM, SAP or Google.
- If Adobe could centrally warehouse all the data they are collecting across their clients, think about how powerful that data set would be for creating more effective messaging, optimization, and content decisions.
And lastly, all of the above is predicated on Adobe actually pulling all of this off. It's a big opportunity and thus, a big challenge. I'm curious to see if they can do it, and if so, how does Madison Avenue react?
